Many investors focus on how much a company pays in dividends. Most companies report their dividends on a cash flow statement or in a separate accounting summary in their regular disclosures to investors. However, you can actually calculate dividends having nothing more than a balance sheet and an income statement.
Net income and retained earnings
To figure out dividends when they're not explicitly stated, you have to look at two things. First, the balance sheet will reveal how much a company has kept on its books in retained earnings. Retained earnings represent the aggregate total of earnings over the history of the company that it hasn't returned to shareholders through dividends.
Second, the income statement will show you how much in net earnings a company has brought in during a given year. That figure helps to establish what the change in retained earnings would have been if the company had chosen not to pay any dividends during a given year.
Making the calculation
To calculate dividends for a given year, first take the retained earnings figures at the beginning and end of the year and subtract the beginning-of-year number from the end-of-year number. That will tell you the net change in retained earnings for the year.
Next, take that net change figure and subtract it from the net earnings for the year. If retained earnings has gone up, then the result will be less than the year's net earnings. If retained earnings have fallen over the course of the year, then the result will be greater than the net earnings for the year. Regardless, the answer represents the amount of dividends paid.
For example, say a company earned $100 million in a given year. It started with $50 million in retained earnings and ended the year with $70 million. The increase in retained earnings was $70 million minus $50 million or $20 million. Subtract $20 million from $100 million, and the difference of $80 million is how much the company paid in dividends.
Finally, if you want to know how much that represents in dividends per share, just take the outstanding share information from the balance sheet. In the above example, if the company has 40 million shares outstanding, then the dividend was $2 per share over the course of the year.
Again, most of the time, you won't have to calculate dividends by hand. You could also seek help from a good broker. If you do, though, this is a good method to use.
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